Environmental Initiatives
Our Recognition of Climate-related Issues
As shown in the Paris Agreement (2015), the IPCC Report (2018), and other documents, the progression of climate change is a scientific fact. Climate change progression is expected to enlarge climate disasters such as intensified typhoons and heavy rains, frequent heat waves and droughts, and the progressive rise of global sea levels. In addition, as part of a concerted effort to mitigate climate change, a global transition to socioeconomic decarbonization, such as setting a framework for reducing greenhouse gas emissions and tightening emission regulations, is expected to continue. In this way, the progression of climate change is a material challenge that will lead to dramatic changes in the natural environment and social structure and have a significant impact on our business.
Identifying, assessing, and managing the risks and opportunities posed by climate change and improving business resilience (both in the sense of toughness and ability to recover) are essential matters for FRI to secure stable profits over the medium to long term, and to aim for stable distribution of dividends and maximization of unitholder value.
Basic Policy concerning Climate Change
The Asset Management Company has established Guidelines for Addressing Climate Change in August 2021, which set forth a policy for addressing climate change-related risks and opportunities as well as initiatives concerning business and strategic resilienceto climate-related issues.
FRI and the Asset Management Company support the international goals set out in the Paris Agreement and will work continuously to reduce greenhouse gas emissions in order to contribute to the mitigation of climate change and will aim to carry out initiatives related to climate change based on these Guidelines.
Guidelines for Addressing Climate Change（162KB）
Support Expressed for the Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD)
In January 2022, the Asset Management Company announced its support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD)(NOTE 1) with the aim of improving transparency by disclosing climate-related risks in line with the TCFD recommendations. It also participates in the TCFD Consortium(NOTE 2), in which many companies and organizations that support the TCFD in Japan participate.
- The TCFD was established by the Financial Stability Board (FSB) to consider how best to disclose climate-related information and how financial institutions should respond. It regards climate change as a serious risk to the global economy, and recommends that companies understand and disclose information on governance, strategy, risk management, and metrics and targets.
- An organization established to discuss how to disclose and make use of climate-related information. Many companies and organizations that support the TCFD in Japan participate in this consortium.
Disclosure items recommended by the TCFD
- Governance
- The organization’s governance around climate-related risks and opportunities
- Strategy
- The impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning
- Risk Management
- The processes used by the organization to identify, assess, and manage climate-related risks
- Metrics and Targets
- The metrics and targets used to assess and manage relevant climate-related risks and opportunities
Governance
To ensure the effectiveness of its sustainability initiatives, the Asset Management Company has established a Sustainability Committee chaired by the Chief Executive Officer (CEO) and Representative Director and comprising as members the Chief Investment Officer, Chief Financial Officer, and the Planning & Administrative Officer. It has also established a Sustainability Secretariat as a body to examine matters before their discussion in the Sustainability Committee.
The chief executive officer for climate-related issues is the Company’s Chief Executive Officer (CEO) and Representative Director, who has final decision-making authority on sustainability promotion, and the operating officer for climate-related issues is the Chief Investment Officer.
Matters related to climate change responses, such as identification and evaluation of the effects of climate change, management of risks and opportunities, progress in adaptation and mitigation initiatives, and setting of metrics and targets, are reported periodically to the chief executive officer for climate-related issues by the Sustainability Secretariat, and each agenda item is discussed and considered by the Sustainability Committee.
For details on the Sustainability Promotion System, please refer to Sustainability Promotion Framework.
Strategy
Identification of risks and opportunities
About once a year, the Asset Management Company identifies and assesses climate-related risks and opportunities pertaining to itself and FRI.
| Projected future state | Financial impact | Timeline | Identification of risks and opportunities | |
|---|---|---|---|---|
| Transition Risks: Impact on business of transitioning society and the economy to low carbon and carbon-free | ||||
|
Policy and Legal Regulatory tightening by promoting low carbon and decarbonization through policy |
Introduction of carbon taxes, introduction of emissions trading systems | Increase in carbon tax burdens, costs for purchase of carbon credits, and other costs | 2030 (Mid term) |
Risk |
| Stricter regulations on total building carbon emissions and energy conservation standards | Occurrence of costs for retrofitting (modification of existing buildings to increase energy efficiency) | 2030 (Mid term) |
Risk | |
| Mandatory and stricter disclosure and reporting systems relating to building energy efficiency assessments | Occurrence of certification and other costs | 2030 (Mid term) |
Risk | |
|
Technology New low-carbon and decarbonization technologies and their mainstreaming |
Advances in and dissemination of energy-saving technology and ZEB (net zero energy building) technologies | Lower utility expenses as a result of introduction of energy efficient equipment and ZEB conversion | 2030 (Mid term) |
Opportunity |
| Increase in costs with introducing energy efficient equipment and ZEB conversion | 2030 (Mid term) |
Risk | ||
|
Market Fluctuations in energy prices and changes in service demand, etc. Reputation Negative changes in reputation from stakeholders |
Increased demand from investors and financial institutions regarding ESG factors and portfolio environmental performance in funding | Diversification of financing methods and expansion of the breadth of investors | 2030 (Mid term) |
Opportunity |
| Increase in capital procurement costs | 2030 (Mid term) |
Risk | ||
| Selection of properties by tenants with an emphasis on environmental performance | Higher rents at properties with high environment performance | 2030 (Mid term) |
Opportunity | |
| Lower occupancy rates at properties with low environment performance | 2030 (Mid term) |
Risk | ||
| Selection of properties by tenants with an emphasis on disaster preparedness | Higher rents at properties with low disaster risks | 2030 (Mid term) |
Opportunity | |
| Lower occupancy rates at properties with high disaster risks | 2030 (Mid term) |
Risk | ||
| Physical Risks: Impact on business caused by changes from traditional climate patterns as climate change progresses | ||||
|
Acute Caused by events |
Increase in torrential rains, typhoons, floods, and storm surges | Loss of sales opportunities due to suspension of public transportation, Loss of sales opportunities due to building flooding, Increase in repair costs and casualty insurance premiums due to building flooding | 2050 (Long term) |
Risk |
|
Chronic Stemming from long-term shifts in climate patterns |
Rising sea levels | Loss of sales opportunities due to building flooding, Increase in repair costs and casualty insurance premiums due to building flooding | 2050 (Long term) |
Risk |
| Increase in average temperature | Increase in air conditioning costs | 2050 (Long term) |
Risk | |
Assessment of risks and opportunities
The identified risks and opportunities were assessed under the scenarios of a global temperature rise of 1.5°C and 4°C, taking into account uncertainties regarding the progress of climate change. We will take priority measures regarding those risks and opportunities with a large impact according to the assessment results.
Scenario analysis assumptions
The main scenarios are shown in the table below.
| 4°C scenario | 1.5°C scenario | |
|---|---|---|
| Transition Risks | IEA (International Energy Agency) World Energy Outlook 2020 SPS | IEA World Energy Outlook 2020 NZE2050 |
| Physical Risks | IPCC (Intergovernmental Panel on Climate Change) Fifth Assessment Report IPCC RCP8.5 | IPCC Fifth Assessment Report IPCC RCP4.5 |
Financial impact of risks and opportunities based on the scenario analysis
| 4°C scenario | 1.5°C scenario | |||
|---|---|---|---|---|
| Financial impact | Identification of risks and opportunities | Impact | Impact | |
| Transition Risks | ||||
| Policy and Legal | Increase in carbon tax burdens, costs for purchase of carbon credits, and other costs | Risk | Small | Large |
| Occurrence of costs for retrofitting (modification of existing buildings to increase energy efficiency) | Risk | Medium | Large | |
| Occurrence of certification and other costs | Risk | Small | Medium | |
| Technology | Lower utility expenses as a result of introduction of energy efficient equipment and ZEB conversion | Opportunity | Small | Medium |
| Increase in costs with introducing energy efficient equipment and ZEB conversion | Risk | Medium | Large | |
| Market・ Reputation |
Diversification of financing methods and expansion of the breadth of investors | Opportunity | Small | Medium |
| Increase in capital procurement costs | Risk | Small | Medium | |
| Higher rents at properties with high environment performance | Opportunity | Medium | Medium | |
| Lower occupancy rates at properties with low environment performance | Risk | Medium | Medium | |
| Higher rents at properties with low disaster risks | Opportunity | Medium | Small | |
| Lower occupancy rates at properties with high disaster risks | Risk | Medium | Small | |
| Physical Risks | ||||
| Acute | Loss of sales opportunities due to suspension of public transportation, Loss of sales opportunities due to building flooding, Increase in repair costs and casualty insurance premiums due to building flooding | Risk | Medium | Small |
| Chronic | Loss of sales opportunities due to building flooding, Increase in repair costs and casualty insurance premiums due to building flooding | Risk | Medium | Small |
| Increase in air conditioning costs | Risk | Medium | Small | |
Initiatives to mitigate risks and realize opportunities
We are implementing the following initiatives to mitigate climate-related risks and realize climate-related opportunities:
- Environmental initiatives through real estate investment
- Implementation of building assessments for medium- to long-term decarbonization planning
Through these initiatives, we will enhance resilience to climate change and climate-related issues.
Risk Management
The Asset Management Company establishes countermeasures for material climate-related risks and opportunities discussed by the Sustainability Committee and considers them in terms of company-wide risk management programs in an effort to integrate the risk identification, assessment, and management processes.
Metrics and Targets
The targets and actual results for energy consumption, greenhouse gas (GHG) emissions, water consumption, and waste recycling rate, which are set as KPIs for mitigating climate-related risks, can be seen from the following pages.